Regulators clear Microsoft and Yahoo search deal

Seven months after announcing a landmark partnership, Microsoft Corp. and Yahoo Inc. said on Thursday their search agreement was approved by both the U.S. Department of Justice and European Commission, clearing the way for the deal to move forward.

The 10-year agreement forms a united front against Google Inc.’s dominance in online search,

but also marks a pivotal moment in the history of Yahoo, as it cedes the space where it was once a pioneer.

Under the terms of the alliance, Microsoft’s Bing search tool will become the exclusive platform on Yahoo’s sites, funneling queries through the Redmond, Wash., software titan’s increasingly popular algorithm.

The Sunnyvale Web portal will sell advertising tied to online search for both companies, and Microsoft will pay Yahoo for the traffic it generates.

Yahoo previously estimated the agreement would add $500 million to its annual operating income and save $200 million in capital expenditures, though not until two years after the deal was approved.

Implementation will begin in the coming days and could be complete in the U.S. by the end of the year.

The goal is to transition U.S. advertisers and publishers to the new platform before the holiday season, but the companies acknowledged it may take until 2011.

The combination will deliver improved results for consumers and better returns for advertisers and publishers, the companies said.

“Although we are just at the beginning of this process, we have reached an exciting milestone,” Microsoft Chief Executive Steve Ballmer said in a statement. “I believe that together, Microsoft and Yahoo will promote more choice, better value and greater innovation to our customers as well as to advertisers and publishers.”

Yahoo CEO Carol Bartz added: “This breakthrough search alliance means Yahoo can focus even more on our own innovative search experience. Yahoo gets to do what we do best: combine our science and technology with compelling content to build personally relevant online experiences for our users and customers.”

Yahoo has stressed since the deal was first announced in July 2009, that it will continue to innovate on the periphery of search, in the way that results are delivered and customized for users.

The company introduced a new search platform in September featuring a left-hand rail that refines results by criteria like brands, prices and information sources and provides glimpses of videos, photos and reviews on the page.

“It is our belief that the battle has moved beyond the back end,” Prabhakar Raghavan, senior vice president of Yahoo Labs, said during a press conference last year. “What we do with it, how we paint it, how we render it, that’s entirely up to us.”